Stop the unethical merry-go-round

Despite costly fraud and scandal, nothing is being done to train citizens and future business leaders in the simple task of proper behavior

By Mark Connolly and Mark DiSalvo

Published: December 26, 2013

The media is filled with seemingly never-ending games of financial fraud and scandal. We continue to witness a basic lack of ethical standards, the end result of which translates into higher consumer costs, economic ruin, cynicism and most assuredly a lack of confidence in our business sector, government and society generally.

Despite all of this, nothing is being done to train citizens and future business leaders concerning the simple task of proper behavior. This is playground stuff – learn to play by the rules and, where rules don’t exist, act appropriately. Why is it so hard for those of us in business suits to remember what our schoolmates and playground monitors taught us?

In 2002, the New Hampshire Securities Bureau reached a $5 million agreement Tyco Corp. concerning its alleged corporate malfeasance. At that time, that settlement was one of the largest securities settlements in the nation’s history. The funds have since been dedicated to establishing programs within higher education in the state for the advancement of ethical standards in both the private and public sectors.

In November, it was announced JPMorgan Chase will be ponying up $13 billion to state and federal regulators to address its mortgage dealings failures. It has been estimated the remaining level of legal exposure by the largest U.S. financial institutions could result in the settlement total for alleged mortgage fraud in the United States to be in excess of $100 billion.

It is now evident 2013 will likely mark the high-water mark toward addressing the responsibility of the financial crisis of the first decade of this century, a period resulting in two major economic slowdowns — all because of ethical lapses in our financial markets.

Now is the time to take stock of why ethics matters. We need to get America’s future business and community leaders thinking about ethical behavior and what it means in terms of responsibility and accountability.

American entrepreneurialism and government support for it has created the most dynamic country in world history. This dynamism has also produced unparalleled growth and economic opportunity. However, the recent past also shows that unlawful and unethical behavior left unchecked can result in moral breakdown and economic self-destruction. We must instill a sense of citizenship and personal responsibility across society.

We propose the Congress direct a small portion of settlement funds to a dedicated national educational ethics program. We come to this notion as a former securities regulator and private equity manager of troubled and fraudulent funds. Such a program can be guided and administered by the recently-established Consumer Financial Protection Bureau so as to promote ethics and ethical curricula within post-secondary education institutions, including professional graduate schools, as well as teaching the importance of ethical obligations in primary and secondary education.

Our proposal includes:

• A nonpartisan panel of educational, financial, consumer and business experts be established to propose how best to implement such a program

• Any program is to be free of all ideological or political bias

• The panel’s work to be funded by an appropriation from financial fraud settlement funds

• The award of any funds for the teaching of ethics in curricula is to be on a voluntary basis.

Funds could also be used in concert to leverage the few already established ethics education programs in the nation.

Doing nothing will mean no real change — consider that the settlement funds derived during 2002-2003 for financial fraud did nothing to affect the course or impact of the much more severe 2007-2010 financial crisis. It is time to act now and teach future generations that ethics matter – if only to diminish future economic blowups.

Business can be rough at times, but extending the lessons on how to play fair will be a boon to us all.

Mark Connolly is former director of securities regulation in New Hampshire and principal of New Castle Investment Advisors. Mark DiSalvo is CEO of Semaphore, a provider of private equity funds.

This article appears in the December 27 2013 issue of New Hampshire Business Review